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High mortgage interest have put pressure on homebuyers and homeowners looking to refinance their mortgages, but relief appears to be in sight.
Financial experts expect the Federal Reserve will lower the federal funds rate in September, the first rate cut of 2024. The impact of the Fed rate on mortgage rates may not be felt immediately, as markets have likely already priced in this expected cut. Still, this move could lead to lower mortgage interest rate in the coming months.
But how low can they go, and what does this mean for your home buying or refinancing plans? Let’s find out.
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How far mortgage rates could fall after the Fed’s September meeting
Josh Green, a mortgage lender at Barrett Financial, thinks there’s a “100% chance” of a Fed funds rate cut, but its impact may vary.
“If Powell [indicates] the economy is weaker than expected or they are considering deeper cuts, [mortgage] rates [might] “Prices will continue to fall as they factor in those future reductions,” Green said.
Assuming the Fed achieves a soft landing — historically rare but likely — Green believes interest rates could rise. fluctuate around 6% for a while. In the long term, they could potentially go down to the 4.5% to 5.5% range.
Debbie Calixto, sales manager at Loan Depot, cautions that we may not see any substantial declines until after the Fed meeting in November.
“If there is confidence in another rate cut in November… we could see another drop in mortgage rates [possibly] “In October,” says Calixto.
Find out more about the best mortgage rates available to you here.
Factors Influencing Tariff Reductions
According to Steve Hill, a mortgage advisor at SBC Lending, there are several factors that influence how far mortgage rates drop (or not):
- Economy: A strong economy usually leads to higher mortgage interest ratewhile a weaker economy often results in lower rates.
- Jobs: High employment can push up mortgage rates, but rising unemployment can push down interest rates.
- Inflation: Lower inflation figures Mortgage rate cuts are often allowed, while high inflation often keeps interest rates high.
- Election: Political uncertainty can cause mortgage rates to fluctuate, with potential policy changes affecting market expectations.
- Global Events: Geopolitical tensions can affect interest rates (for example, conflicts that push up oil prices can keep inflation high, preventing rate cuts).
What this means for homebuyers and refinancers
Acting now could mean less competition and more potential for capital growthOn the other hand, waiting may lead to lower rates, but increased demand for housing.
Your decision will depend on your specific financial situation and goals.
Should you buy a house now?
Buying a house can now be beneficial, even with higher rates.
“We [currently] have a low supply of houses… If interest rates fall, [we expect] “An influx of eager buyers,” says Calixto.
This increased demand (and the lack of inventory to support it) would drive up house prices —which could potentially offset the benefits of waiting for lower rates.
Calixto recounts her experience helping a couple buy their first home with an FHA loan nine months ago. Interest rates were high then, Calixto says, in the mid-7% range. But they’re refinancing now to save more than $400 a month. Plus, the value of their home has increased significantly in that short time.
This scenario shows how taking action now can quickly create capital gains and create opportunities to take advantage of future interest rate declines through refinancing.
When does it make sense to wait?
While acting now may be beneficial for some, waiting may make more sense for others. For example, Green suggests that pursue a mortgage refinancing For some homeowners, it may still be too early.
“There may not be as many benefits unless you bought a mortgage last year and have an interest rate around 8% or have a VA loan,” Green says.
However, he warns against waiting at long, even if you think interest rates will fall further.
“[A gentleman I know of through a colleague has been holding out for the ultimate bottom]but he’s missing out on $800 a month in savings,” he says. This scenario shows how waiting without a smart strategy can cost you money in the long run.
Instead, Green recommends a balanced approach. It may be worth refinancing now if you can save at least $300 a month. With some loan types, such as VA loans, you can simply refinance again after a short period if rates continue to fall.
The heart of the matter
While mortgage rates could fall after the Fed meeting in September, no one knows exactly when or by how much. That’s why experts advise against trying to time the market.
“Estimating future mortgage rate movements and waiting with hope [that] rates will drop, may cause delays [your] ability to create wealth,” Calixto warns. Instead, make decisions based on where you are now and what will benefit you most in the present.
If you are in the preparation phaseTalk to several mortgage lenders. They can help you understand your options and come up with a solid plan. While you’re having those conversations, look for an interest rate that’s much lower than what you have now or lower than recent averages. Typically, a 0.75% or higher drop is worth considering.
